Chief executive officer, Johan Enslin, said consumer spending remained under pressure from rising costs and high levels of indebtedness. “Our customers in the middle to lower income market have also been impacted by widespread labour unrest, retrenchments and high levels of unemployment.
“The performance of our debtors’ book reflects the worsening credit climate and the increasingly challenging credit collection environment. We believe the credit environment is unlikely to improve in the short term and could become tougher”, he said.
Revenue increased by 1.8% to R5.28 billion mainly through increased financial services income. Merchandise sales declined by 2.5% to R2.41 billion as trading became more difficult in the second half of the year.
Despite the current slowdown in the consumer economy the group opened 20 new stores, bringing the store base to 636 at year end.
Costs continued to be tightly managed and the growth in operating costs, excluding debtor costs, was well contained to 1.6%, despite inflationary cost pressures from a weakening Rand and other sources.
The increase in debtor costs remained stable at 30%, the same level as reported in the interim results. Debtor costs as a percentage of net debtors moved from 9.4% to 11.6% and the impairment provision increased from 17.4% to 18.6%. The credit application decline rate increased from 36.5% to 38.4%.
The group’s operating profit margin of 21.8% (2013: 24.2%) was impacted by higher debtor costs and lower sales growth. Operating profit was 7.9% lower at R1.15 billion.
On the outlook for the new financial year, Enslin said the current difficult trading conditions are expected to continue owing to low consumer confidence, high personal debt levels and continuing instability in the labour market.
“However, the group believes in its successful decentralised business model and will continue to invest for the future. We plan to open 20 to 25 new stores in the year ahead and are committed to achieving our medium-term target of 700 stores.”
“The focus in this challenging environment will remain on driving credit sales growth, containing costs and improving collections,” he added.
Ends
Issued by Tier 1 Investor Relations on behalf of Lewis Group
For further information kindly contact
Graeme Lillie
Tier 1 Investor Relations
(021) 702 3102 / 082 468 1507
Cape Town – Listed furniture retailer, Lewis Group, has successfully raised R500 million in its debut issue on the debt capital market.
This is the first issue under Lewis Group’s R2 billion domestic medium-term note (DMTN) programme to be listed on the JSE with effect from 31 October 2013.
The funds were raised across a three-year bond and six month commercial paper. The issue was 2.55 times subscribed, with bids totaling R1.277 billion.
Chief executive officer, Johan Enslin, said the group entered into a DMTN programme to diversify its sources of funding. The proceeds of the issue will be used primarily to fund operational requirements and for refinancing maturing debt.
In September this year, the Lewis Group was assigned an ‘A(za)’ long-term credit rating by Global Credit Ratings with a stable outlook.
Absa was the sole lead arranger and ratings adviser on the transaction.
Johannesburg – Furniture retailer Lewis Group was awarded a good credit rating on Friday by Global Credit Ratings for its consistent performance.
Lewis received the first-time rating of A for outperforming the ailing local furniture industry, which has been hit by bad debt and slow demand.
The “A” rating is a high score for a long-term issuer rating defined by the emerging markets ratings agency as: “High credit quality. Protection factors are good.
“However, risk factors are more variable and greater in periods of economic stress.”
The company sought out the ratings agency as it is considering refinancing its debt and venturing into the bond market.
Statistics SA retail sales data confirm that the local furniture industry is largely in decline as consumers spend less on large ticket items such as furniture and appliances.
Lewis said for the three months to June revenue rose 4.7 percent year on year and its chief executive, Johan Enslin, blamed rising unemployment and uncertainly in the labour market for the slow spending.
The company reported that bad debt had increased by 3 percent to R417.9 million from R405.4m in the year to March.
Eyal Shevel, the head of the corporate sector at the Johannesburg-based ratings agency, said Lewis had a good track record in continued earnings and had consistently outperformed sector peers such as JD Group and Ellerines.
“Lewis has a steady growth track record; 5 percent to 6 percent growth over the last two years is good.”
Shevel said although Lewis was affected by the same factors that hit Ellerines and JD Group, it had a different model with less exposure to pure unsecured lending. “Lewis doesn’t offer pure unsecured lending. It offers credit for consumers who are buying assets at its stores. It does not fund pure consumption.”
He said an average of 6 percent growth was good.
“Lewis won’t shoot the lights out with double-digits growth but we expect them to do well.”
Gryphon Asset Management analyst Reuben Beelders said Lewis had been operating in a low interest rate environment and that an interest rate increase would not be good for its growth.
In September, the Reserve Bank opted to keep the repo rate at 5 percent.
“Bad debts are still bad but they are just increasing at a slower rate. If interest rates rise the situation could deteriorate quite rapidly,” Beelders said.
An old fashioned business model that is based on personal contact rather than call centres and which empowers store managers to make ‘executive’ decisions appears to be paying dividends for credit retailer Lewis Group.
Despite the tumultuous times the company posted solid results for the year to March. Revenue rose 6.8% to R5.1bn and the operating margin rose 50 basis points to 24%. Tight control of operating expenses and debtor costs, coupled with increasing credit sales helped lift headline earnings per share by 13.6%.
The healthy dividend remained, rising 16.3% to 514c for the year.
However Lewis could not escape the financial devastation caused during last year’s widespread strikes, though it appeared to weather it better than competitor Ellerines, part of African Bank. In Lewis’ case furniture sales rose by 6.6% in the first half of the financial year, and by just 2.7% in the second half, between October and March. Ellerines, which reported its six month earnings to March on Monday, saw sales fall by 11% in the same period.
Lewis made sure that the majority of its customers continued to pay their debts – despite the tough collection environment. The growth in debtor costs was contained to 3.3% and debtor costs as a percentage of net debtors improved from 10.8% in 2012 to 9.4% in 2013.
Lewis chief executive Johan Enslin attributes this to the decentralised business model where stores are responsible for their own collections. “We employ people from the community to collect.” And where a customer runs into trouble, “the store manager is empowered to make a repayment plan with that customer.”
Ellerines on the other hand saw bad debts rising significantly. In March it was forced to write off non performing loans to improve the quality of its loan book. This contributed to the 26% drop in African Bank earnings and prompted the company to warn that the furniture business would likely faces losses this year, as demand from cash-strapped consumers wanes.
Both Lewis and Ellerines have seen their decline rate on credit applications increase. In Lewis’s case it rose to 36.5%, from 33% last year and from 25% in 2008. “The increase in unsecured lending and consolidation products has impacted customers negatively and increased indebtedness,” Enslin says.
That said, Lewis saw credit sales (from existing and new customers) increase to 75.3%, up from 68% two years ago and 71% last year. “We think that customers find our credit offer attractive and our stores situated in locations that are convenient,” says Enslin.
“The difficult trading conditions are visible in the top line growth,” says Cadiz Asset Management retail analyst Warren Buys. “They are doing everything they can to drive sales, including lengthening the book. To have grown earnings as they have is indicative of a strong management team that has been through a few cycles.”
Without detracting from the results, he points out that the lower bad debt costs as a percentage of the book may have more to do with the fact that the costs remained stable, while the debtors book grew. “The size of the book has increased from R5.8bn to R6.9bn, that is significant growth,” he says.
Looking ahead, Enslin admits that there are “a few dark clouds on the horizon.”
“The job market is weak, inflation is high. These things dampen consumer confidence, which leaves us with a big challenge. The next 12 months will be tough.”
A secondary headwind is of a regulatory nature. The task team made up of the National Credit Regulator, the FSB and National Treasury is still busy with its investigation into the credit insurance that the furniture companies sell with their products. At this point there is no hint of possible findings, despite analyst reports on the subject, and a report is expected in July.
Earnings from insurance are not separately disclosed, but in Lewis’ case, insurance sales account for about 19% of turnover – a material number.
However shareholders were hugely relieved at the results and the share surged upwards by 13% from R52 to R58.86. This helps, but it has a way to go if it is to reverse the 25% fall in the last six months.
Furniture and appliances retailer Lewis Group reported a 13.6% rise in headline earnings per share for the year ended March, “which speaks to the fact that our business model is a resilient one”, according to CE Johan Enslin.
Mr Enslin said that amid challenging trading conditions “this is a solid set of results”.
A final dividend of 302c per share was declared, bringing the total dividend to 514c, an increase of 16.3%. Lewis Group’s share price rallied 13.44% to close at R59 on Wednesday after the results were released.
Earlier in the week, African Bank Investments Limited’s (Abil’s) retail division, Ellerine Holdings, reported a less positive set of results for the six months ended March.
Abil’s retail unit saw an 11% decline in sales over the period, leading to a fall in headline earnings from R191m in the prior comparable period to R18m.
Mr Enslin said Lewis Group’s decentralised collection model was a resilient one, which had underpinned the group’s performance. Lewis does not have call centres; each store has a team, employed from the local community, “responsible for collecting the book”.
When a customer defaulted, the team members were fully trained and could address the customer in their home language, he said. “We are pleased with the 6.8% increase in our revenue line. Our operating margin has expanded from 23.5% to 24% …. Costs were also well contained through the year.”
While trading conditions were expected to “continue to be difficult”, with high inflation and a weak job market, “we believe we are in a position to … bring exclusive furniture to the market — and these are furniture lines that speak to the tastes of credit customers”.
“We also believe that through our business model … we are strongly positioned to fight for the business that is available out there,” he said.
Credit sales increased from 71% to 75% of total sales, which was above the 70% target.
This also indicated that the 71 stores the group had opened over the past three years were “in the right locations where credit customers shop”. The Lewis Group had opened 24 stores over the period, 12 of which were Lewis outlets. Lewis stores are being rolled out in a smaller format, at almost half the size as they were a few years ago.
The group planned to open 20 to 25 outlets this year.
Lewis Group increased headline earnings by 14% to R890 million in the year to March 2013 despite trading conditions in the furniture retail sector becoming increasingly challenging.
A final dividend of 302 cents per share has been declared, bringing the total dividend to 514 cents, an increase of 16.3%.
Chief executive, Johan Enslin, said the group delivered a resilient performance, benefiting from its decentralised collection model which resulted in only a marginal increase in debtor costs.
“Tight control of operating expenses and debtor costs, together with increasing credit sales, lifted the operating profit margin by 50 basis points to 24.0%. Operating profit increased by 9.5% to R1.2 billion with headline earnings per share 13.6% higher at 1 003 cents (2012: 883 cents),” he said.
Merchandise sales increased by 4.4% to R2.5 billion, “reflecting the current tight consumer economy and the impact of widespread labour instability during the past year.”
Revenue in the flagship Lewis brand, which comprises 83% of group revenue, increased by 5.8%. Best Home and Electric grew revenue by 12.8% and My Home by 9.9%.
Credit sales increased from 71.4% to 75.3% of total sales as the group focused on “attracting credit customers through exclusive merchandise offerings and targeted customer promotions”.
The gross profit margin at 38.3% benefited from the merchandise import programme and the strategy of sourcing innovative and exclusive products locally and internationally.
Enslin said the overall quality of the debtors’ book has remained stable and the growth in debtor costs was contained to 3%. Debtor costs as a percentage of net debtors improved from 10.8% in 2012 to 9.4% in 2013, exceeding management’s target of 9.5% to 10.5%.
Twenty four new stores were opened during the year to bring the store base to 619, including 59 stores in Botswana, Lesotho, Namibia and Swaziland. All the new Lewis outlets are the smaller format stores with lower cost structures and higher sales densities. The group plans to open 20 to 25 new stores in the year ahead and expand the retail footprint to 700 in the medium term.
Discussing the outlook, Enslin said disposable income in the Lewis target market remains under pressure and consumer confidence continues to decline.
“In this tough trading environment we will continue to focus on sourcing exclusive, value for money merchandise and market our product offer strongly to attract credit customers. Containing expense growth and debtor costs remains a top priority,” he added.
Graeme Lillie, Tier 1 Investor Relations 021 702 3102 / 082 468 1507
In the competitive furniture sector where consumers’ disposable income is under pressure, Lewis Group is in a position to fight for all available sales this festive season, its CE Johan Enslin said on Monday. “It will be tough, but as a true-blue retailer, we always prepare well for Christmas. We are carrying more stock than a year ago, and we’ve taken a conscious decision to take control of stock earlier. We’re backing it up with very strong added-value promotions.
“We’ll be distributing 12-million brochures to the homes of potential customers over the next six weeks, we will also be handing out 8-million A4 leaflets at taxi ranks, stations, and bus ranks and we will have a very prominent position on TV as well,” Mr Enslin said.
Lewis Group, which sells furniture to the lower and lower-middle income market, yesterday reported a 10.6% gain in headline earnings per share to 419c. Revenue grew 6.6% to R2.4bn. The company’s interim dividend was increased 23.3% to 212c.
Mr Enslin said the company’s merchandise sales had shown an improving growth trend.
Merchandise sales in the group’s flagship Lewis brand, which accounts for 83% of group sales, increased 6.1%. Its Best Home and Electric division saw sales growth of 8.5%, while My Home advanced 6.8%. Credit sales increased from 73.2% to 75.2% of total sales.
“The overall quality of our debtors’ book has remained stable through an ongoing focus on tight credit granting and collections strategies. This has contributed to debtor costs declining 2.2%, with debtor costs as a percentage of net debtors reducing from 5.1% to 4.6%,” Mr Enslin said.
The group opened 13 new stores in the past six months to bring its store base to 610 — 57 of which are outside South Africa.
The group said it was on track to meet its store opening target of 20-25 stores in this financial year.
Although the majority of South Africa’s retailers have posted solid results over the past year, analysts are concerned the rate of growth is unlikely to continue as consumers start tightening purse strings.
Lewis Group today reported an 11% increase in headline earnings to R372 million for the six months ended September 2012 as trading conditions in the furniture retail sector remained challenging.
The interim dividend has been increased by 23.3% to 212 cents per share.
Chief executive, Johan Enslin, said merchandise sales have shown an improving growth trend. “Our sales increased well ahead of selling price inflation, growing by 6.4% for the period compared to growth of 3.3% for the previous financial year.”
Merchandise sales in the flagship Lewis brand, which accounts for 83% of group sales, increased by 6.1%. Best Home and Electric sales grew by 8.5% and My Home by 6.8%.
Thirteen new stores were opened in the past six months to bring the store base to 610, including 57 outside of South Africa.
Enslin said the continued focus on attracting credit customers through exclusive merchandise offerings and targeted customer promotions resulted in credit sales increasing from 73.2% to 75.2% of total sales. Credit sales for the period increased by 9.5% while cash sales declined by 1.4%, confirming the appeal of the group’s credit offering, he said.
The group’s gross profit margin at 37.7% (2012: 38.5%) is well within management’s medium-term target range of 36% to 38%.
“The overall quality of our debtors’ book has remained stable through an ongoing focus on tight credit granting and collections strategies. This has contributed to debtor costs declining by 2.2%, with debtor costs as a percentage of net debtors reducing from 5.1% to 4.6%,” he said.
The debtors’ book increased by 9% mainly as a result of the average term of new credit contracts increasing from 28 months to 32 months. This is in line with the group’s strategy of offering longer term deals on new contracts to good paying customers.
On the outlook for the remainder of the financial year, Enslin said trading conditions are expected to be challenging and the group will continue to focus on cost control and debtor costs in this low inflationary environment.
“New merchandise ranges have been introduced and stores are well stocked in preparation for the Christmas trading period. Strong marketing and promotional campaigns have been developed to attract credit customers and drive sales growth in the current competitive environment,” he said.
The group is on track to meet its store opening target of 20 to 25 stores for the financial year.
Furniture retailer Lewis Group said on Friday that sales for the four months to the end of July increased by 5% from the same period a year ago.
“Trading in April was challenging mainly as a result of the Easter holiday period. However, sales improved steadily from May onwards, with sales for June and July showing an increase of 6% for the two months,” CEO Johan Enslin said.
Furniture retailer Lewis Group’s strategy to open smaller-format stores in high-density trading areas is paying off by generating sales on a par with bigger stores, but at significantly lower cost.
This, along with new merchandise, better credit sales and higher collections, helped the group perform well in the year to March.
Forty new stores were opened in the year, increasing its store base to 582. This included 21 Lewis stores, of which 17 were smaller formats. In the current year 25 small Lewis stores will be opened out of a total of 40 new stores.
Johan Enslin, the chief executive of Lewis Group, said yesterday that the smaller stores, which were launched three years ago, cut manpower in half, but their sales compared favourably with big stores.
The small stores have a floor area of about 250m2 compared with the larger format’s 400m2 and they stock fewer lines, with the balance displayed in store through an online catalogue.
The group’s strong performance was also attributed to the introduction of new ranges twice a year as opposed to once a year previously. Merchandise sales rose by 12 percent to R2.3 billion and revenue increased 11.4 percent to R4.6bn.
Group headline earnings a share increased 21.6 percent to R7.81. Credit sales as a percentage of total sales grew from 68.5 percent to 71.4 percent.
Furniture and appliance sales increased by 12.1 percent and electronic goods sales by 11.9 percent. Merchandise sales in the flagship Lewis brand, which comprise 84 percent of total sales, rose by 12.6 percent. Best Home and Electric improved sales by 17.9 percent.
The shares rose 0.54 percent to R77.01 on the JSE yesterday.
